Taking your relationship to the next level? Think of the tax consequences
My partner and I entered into a defacto relationship in November , and declared this on our respective tax returns. She was on a one year working visa, she. For instance, if you transfer an asset into a discretionary trust before your partner becomes your spouse or de facto spouse, the Family Court may still include the. Who qualifies as a spouse under super and tax law? couples to demonstrate their de facto status more easily by registering their relationship.
This is understandable as practical matters such as financial and tax planning are not exactly romantic considerations when one is head over heels in love. However, failing to consider such issues could cost you down the track, especially if you have already accumulated a reasonable amount of wealth prior to entering into the relationship.
Is it beneficial to declare 'de facto' on your Australian Tax return?
This article looks at some of the financial and tax issues you should perhaps consider when Cupid is knocking on your door. To protect these assets, you should consider speaking to a family lawyer, who may advise you on the steps that could potentially be taken to reduce the likelihood of you losing some of these assets if the relationship turns bad. For instance, you may be advised to enter into a Binding Financial Agreement or prenuptial agreement, which could involve some delicate discussions between you and your partner.
As with all asset protection strategies, there is no guarantee that the strategy you adopt will work. The Family Court, in particular, has very wide powers, which include overlooking legal structures and setting aside previous agreements made by the parties.
For instance, if you transfer an asset into a discretionary trust before your partner becomes your spouse or de facto spouse, the Family Court may still include the asset in the divisible property pool if your relationship breaks down. One of those hurdles that may be reasonably effective is for you to surrender your interest in the asset. For example, you may gift your investment property to your parents or siblings or transfer the property to a discretionary trust over which you have no control.
However, there may be taxation and stamp duty implications on the asset transfer.
While you may not receive any consideration for the gifting of the property, the capital gains tax provisions include a market value substitution rule that treats as if you have received market value consideration for the property, which may give rise to capital gains tax in your hands.
Accordingly, it is critical that you fully understand the impact of your strategy before it is implemented.
Meaning of spouse for super and tax purposes
The same may apply to stamp duty. While disowning your interest in an asset may protect it from future spousal claims, you are effectively giving away your control over the asset, which means that your beneficiary may do whatever they want with the asset without consulting you. Not having an interest in the asset also means that you will not be able to easily use it as security for a loan in future.
For instance, if you give away your existing home before entering into a relationship, and the two of you want to buy a new home, you cannot easily access the equity in your existing home to obtain finance for the new home unless the beneficiary who has been gifted your existing home agrees to offer the property as security. Real property If you are generous enough to transfer half of the interest in your principal place of residence to your other half, there may be an exemption from stamp duty in relation to the transfer.
As the stamp duty law varies in different states and territories, you should confirm with your adviser that such an exemption applies in your case. Further, as the property is your main residence for capital gains tax purposes, the disposal of your half-interest in the main residence will not give rise to any capital gains tax.
On the other hand, if both of you enter into the relationship with your own properties, you will then have to choose how the main residence exemption will apply going forward: You may pick one of the properties as the main residence for both of you during the period you are together; or You may nominate a different property each as your main residence, but the main residence exemption will only apply to half of the period while you are together.
To determine which of these options will provide you with a better tax outcome, you may need to crunch some numbers, which may also involve doing some crystal-ball gazing for the likely future value of each of the properties. Interestingly, if neither of you owns any property when you enter into the relationship but you buy two properties for personal use as co-owners, you may still pick one of the properties as your main residence, which will remain your tax-free home, while any capital gain derived on the other property will attract capital gains tax if it is sold in future.
Alternatively, you may each elect to treat a different property as your main residence under the following rule: At Q, write the amount of any of the following exempt pension income that your spouse received in — Make sure you include only your spouse's exempt pension income.
Do not include at Q any of the exempt payments listed at B. At A, write your spouse's reportable superannuation contributions. Reportable superannuation contributions are the sum of reportable employer superannuation contributions and deductible personal superannuation contributions see D12 Personal superannuation contributions Step 3 Write the result, your spouse's reportable superannuation contributions amount, at A.
At B, write the amount of the following tax-free government pensions your spouse received for —18 do not include these at Q above: At C, write the target foreign income your spouse received during — Your spouse's target foreign income is: It includes any foreign income that is not taxable in Australia.
All foreign income must be converted to Australian dollars before you complete C. If your spouse's target foreign income amount is zero, write 0. At D, write your spouse's total net investment loss.
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Your spouse's total net investment loss is the sum of any net financial investment loss and any net rental property loss. If your spouse's total net investment loss is zero, write 0.How to apply for 820 defacto subclass partner visa to Australia
At E, write the total amount of child support your spouse provided to another person. The amount of child support provided is the total amount of any payments or benefits that your spouse was required to pay or provide to another person to maintain their natural or adopted child.
However, you do not count any payments or benefits made or provided to you by your spouse unless you live apart on a permanent or indefinite basis. If the total amount of child support your spouse provided to another person is 0, write 0.
Step 5 If you do not consent to use part or all of your tax refund to repay any Family Assistance debt of your spouse, print X in the No box. You have finished this section. If you do consent, read below. Answer yes to this question only if all of the following apply to you. Your spouse has given you authority to quote their customer reference number CRN on your tax return if your spouse does not know their CRN, they can contact the Department of Human Services.
You expect to receive a tax refund for You consent to use part or all of your refund to repay your spouse's Family Assistance debt. If you consent, print X in the Yes box.
You must complete your spouse's CRN at Z, and sign and date the consent.